Customer‐oriented cost cutting: process management at Volvo

Drawing on an in‐depth case study of the Volvo automobile company’s strategy in the early 1990s, before the Ford takeover in 1999, this paper demonstrates how policies designed to reduce inventory costs and slim the distribution pipeline can affect a business’ network of suppliers and distributors in unexpected ways. It also shows how the implementation of cost reducing reengineering projects naturally lead to sub‐optimization and a need to consider higher‐level processes. In the Volvo illustration a manufacturer’s reengineering of its distribution chain evolved into a complete recasting of its order fulfillment process, and an adoption of a process management structure. The paper traces the effects on the network of distributors and dealers and shows how Volvo’s new structure curtails the distribution role of foreign sales subsidiaries and shifts their tasks towards market analysis, demand forecasting and customer service in foreign markets. It also shows how a process management perspective impacts a firm’s value chain, marketing function and organizational structure. In the end, the case demonstrates how a division can cut costs and still become more customer‐oriented – and become a more valuable asset for a diversified corporation.